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Another foreclosure tsunami unlikely, even as year-over-year numbers increase dramatically

Despite a 153% increase in year-over-year foreclosure activity, no looming wave of defaults seems likely to threaten the U.S. housing market, or the economy.

That seeming contradiction is actually the logical takeaway from the recently-released Midyear 2022 U.S. Foreclosure Report from ATTOM, which showed a total of 164,581 U.S. properties with foreclosure filings – default notices, scheduled auctions or bank repossessions — in the first six months of 2022. That figure is up 153 percent from the same time period a year ago but down one percent from the same time period in 2020. So while it’s undeniable that foreclosure activity is increasing significantly from the historically low levels we’ve seen over the past two years, it’s important to keep the numbers in perspective, and remember that overall foreclosure activity is still running about half of its normal level.

ATTOM Chart on First-Half Foreclosure Activity

Illinois, New Jersey, and Ohio post highest state foreclosure rates

Nationwide 0.12 percent of all housing units (one in every 854) had a foreclosure filing in the first half of 2022.

States with the highest foreclosure rates in the first half of 2022 were Illinois (0.26 percent of housing units with a foreclosure filing); New Jersey (0.24 percent); Ohio (0.21 percent); Delaware (0.20 percent); and South Carolina (0.19 percent)

Other states with first-half foreclosure rates among the 10 highest nationwide, were Florida (0.18 percent); Nevada (0.18 percent); Indiana (0.16 percent); Georgia (0.13 percent); and Michigan (0.13 percent).

Highest metro foreclosure rates in Cleveland, Atlantic City, and Jacksonville

Among 223 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in the first half of 2022 were Cleveland, Ohio (0.40 percent of housing units with foreclosure filings); Atlantic City, New Jersey (0.33 percent); Jacksonville, North Carolina (0.31 percent); Chicago, Illinois (0.30 percent); and Columbia, South Carolina (0.30 percent).

Other metro areas with foreclosure rates ranking among the top 10 highest in the first half of 2022 were Rockford, Illinois (0.30 percent of housing units with a foreclosure filing); Lakeland, Florida (0.27 percent); Akron, Ohio (0.24 percent); Fayetteville, North Carolina (0.24 percent); and Trenton, New Jersey (0.23 percent).

Foreclosure activity didn’t go up everywhere, however. A handful of markets bucked the national trend with decreasing foreclosure activity compared to a year ago. Those markets included Lake Havasu, Arizona (down 47 percent); Eugene, Oregon (down 27 percent); Springfield, Illinois (down 19 percent); Shreveport, Louisiana (down 9 percent); and Brownsville, Texas (down 8 percent).

Foreclosure starts up 219 percent from last year

A total of 117,383 U.S. properties started the foreclosure process in the first six months of 2022, up 219 percent from the first half of last year and up 19 percent from the first half of 2020.

States that saw the greatest number of foreclosures starts in the first half of 2022 included, California (12,906 foreclosure starts); Florida (11,448 foreclosure starts); Tennessee (10,970 foreclosure starts); Illinois (8,411 foreclosure starts); and Ohio (6,987 foreclosure starts).

It’s important to note that many of the foreclosure starts we’re seeing today – in fact, much of the overall foreclosure activity we’re seeing right now – is on loans that were either already in foreclosure or were more than 120 days delinquent prior to the pandemic. Many of these loans were protected by the government’s foreclosure moratorium, or the CARES Act mortgage forbearance program, or they would have already been foreclosed on two years ago. There’s very little delinquency or default activity that’s truly new in the numbers that ATTOM is tracking.

Still, foreclosure starts are the most reliable way to get a sense of the market’s direction, and there’s no doubt that these numbers are moving back towards what we’d typically see in a normal housing market.

Bank repossessions climb in first half of 2022

Lenders foreclosed (REO) on a total of 20,750 U.S. properties in the first six months of 2022, up 30 percent from the last half of 2021 and up 113 percent from a year ago.

It’s interesting to juxtapose the increase in bank repossessions with the increase in foreclosure starts – both are rising, but starts are rising at twice the speed of repossessions. This may be an indication that more financially distressed borrowers are leveraging the equity they’ve built up in their homes and selling the properties prior to the foreclosure auction. Auction companies have also cited higher-than-normal sell-through rates at courthouse auctions over the past year, as investors have continued to look for assets during an historically low period of available inventory. ATTOM’s data shows that almost 90% of borrowers currently in foreclosure have positive equity, a far cry from the last foreclosure cycle, when a third of all borrowers were underwater on their loans. So this is a trend to keep an eye on.

States that posted the greatest number of REOs in the first half of 2022 included, Illinois (2,434 REOs); Michigan (2,259 REOs); Pennsylvania (1,290 REOs); California (1,043 REOs); and Florida (1,041 REOs).

Q2 2022 foreclosure activity below pre-recession averages in 79 percent of major markets

There were a total of 90,139 U.S. properties with foreclosure filings in Q2 2022, up 15 percent from the previous quarter and up 165 percent from a year ago.

The national foreclosure activity total in Q2 2022 was 68 percent below the pre-recession average of 278,912 per quarter from Q1 2006 to Q3 2007, making Q2 2021 the 23rd consecutive quarter with foreclosure activity below the pre-recession average.

Second quarter foreclosure activity was below pre-recession averages in 177 out 223 (79 percent) metropolitan statistical areas with a population of at least 200,000 and sufficient historical foreclosure data, including New York, Los Angeles, Chicago, Dallas, Houston, Miami, Atlanta, San Francisco, Riverside-San Bernardino, Phoenix and Detroit.

Metro areas with second quarter foreclosure activity above pre-recession averages included Honolulu, Richmond, Virginia-Beach, Albany, and Montgomery.

Average foreclosure timeline increases from last year

Properties foreclosed in the second quarter of 2022 took an average of 948 days from the first public foreclosure notice to complete the foreclosure process, up from 917 days in the previous quarter and up from 922 days in the second quarter of 2021. These foreclosure timelines have definitely been inflated due to the moratorium and forbearance programs implemented by the Federal Government; in many cases, properties were scheduled for foreclosure in early 2020, and have lingered in a state of “foreclosure limbo” for the past two years.

Average Days to Complete Foreclosure Chart

States with the longest average foreclosure timelines for foreclosures completed in Q2 2022 were Nevada (2,683 days), Hawaii (2,619 days), New Jersey (1,984 days), Louisiana (1,901 days), and New York (1,823 days).

States with the shortest average foreclosure timelines for foreclosures completed in Q2 2022 were West Virginia (82 days), Montana (84 days), Missouri (117 days), Minnesota (141 days), and Arkansas (154 days).

No Tidal Wave, but Some Opportunities for Investors

What to make of all these numbers?

There’s nothing in the data suggesting a flood of foreclosures like the one we saw from 2008-2010. In fact, the most likely scenario appears to be a slow, steady return to pre-pandemic levels of foreclosure activity sometime in 2023. For fix-and-flip and rental property investors, diligence will remain the key – there will be opportunities across the country, with certain areas having more foreclosure activity than others.

A deep or prolonged recession in 2023 could change this math meaningfully. But that’s a topic for another day.

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